Division of Law Prevails in Dispute Over
Corporate Tax Base Allocation -
Suit on Behalf of Division of Taxation Means
Firm Must Pay $1.6 Million

TRENTON
-- Attorney General Anne Milgram and Division
of Law Director Robert Gilson announced
today that the State has prevailed in its
opposition to attempts by New Jersey Natural
Gas to reduce the company’s New Jersey
tax obligation by allocating part of its
taxable base out of state. The company asserted
that an employee’s home office and
various gas storage facilities located in
other states allowed it to do so.

In
a 38-page decision, the Tax Court of New
Jersey held that a New Jersey Natural Gas
employee’s home office in Connecticut
did not meet requirements that would allow
the company to allocate a portion of its
tax base to Connecticut. Likewise, New Jersey
Natural Gas storage facilities outside of
New Jersey also failed to meet the standard.
As a result, the Tax Court held that New
Jersey Natural Gas is required to allocate
100 percent of its tax base to New Jersey
for Corporation Business Tax purposes.

The Tax Court ruling means that New Jersey
Natural Gas must pay its Corporate Business
Tax obligation of $1,623,752.00 to the State,
plus statutory penalty and interest.

In its written decision, the Tax Court noted
that allocating 100 percent of New Jersey
Natural Gas’s tax base to New Jersey
is not the most precise method, nor the
most preferred by the taxpayer. However,
the Court found that 100 percent allocation
did best represent New Jersey Natural Gas’
activities inside and outside of New Jersey,
since almost all of its property, payroll
and income is located within the State.
The Tax Court rejected New Jersey Natural
Gas Company’s constitutional arguments,
ruling that the company failed to prove
unconstitutionality through “clear
and cogent evidence.”

The
Tax court victory preserves New Jersey’s
ability under the law to define and tax
100 percent of a business’ New Jersey
tax base.

Deputy
Attorney General Heather Lynn Anderson of
the Division of Law’s Treasury Section
handled the matter on behalf of the State.
Chief William J. Bryan and Conferee Marlene
Barnhart Mohr of the Division of Taxation
assisted in the litigation.